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Get Your Children Off To The Best Financial Start

Many statistics show that people are sorely lacking in financial education. It is the absence of knowledge on how to budget and save money that contributes to the high number of bankruptcies and the even higher number of people who are living paycheck to paycheck.

To make sure your kids don’t suffer this fate, it is a good idea to teach them good money habits from a very young age. This means teaching them, perhaps, the most fundamental lesson of all – how to save.

Teaching Kids to Save

Teaching kids to save money should begin as soon as your children are old enough to understand the concept of delayed gratification, if not before. Kids need to know that if they don’t have enough money to buy something right away, that they need to save up their money for it. You can start by helping them to do this when they are very young if there is a toy or game they want.

When they get their allowance, encourage them to set aside a portion of it for that desired toy. Don’t just give in and buy the toy for them. Then, when they finally save up enough money to purchase the item they have been coveting, have a conversation with them about how saving allowed them to get this item.

As kids get older and start to understand more and more about saving, you can help them to start saving for bigger goals and to understand the importance of saving for the future. One great way to get your kids on the right path is to get them a junior ISA, as they do in the UK.

Junior ISAs are tax-advantaged savings accounts that you, your relatives and your kids can contribute money to. The money in junior ISAs grows tax free and then kids can either cash it in or, ideally, can convert it to an adult ISA when they turn 18.

Tips for Teaching Saving

Some parents require kids to save, mandating that they put aside a portion of their allowance or income earned. While this can work in certain cases, making saving mandatory without explaining why is unlikely to teach kids the fundamental money lessons that they need to learn. After all, when they become adults, no one is going to force them to save.

Instead, kids should be encouraged to understand why they are saving and how saving can better help them to reach their goals and make the most of their money. One creative idea to help kids understand this is to consider encouraging them to save for their first car by offering a “matching” program. That way, kids will get to work for the car they buy, see the value of saving and get a real, physical and tangible example of being able to buy something that is really desired, simply because they planned ahead and saved.

Leading by example is also a great idea as well. Your kids should see you not only opening junior ISAs, but also see you practicing smart spending decisions for yourself. This means that your kids should see you saving, not spending money you don’t have and otherwise exhibiting smart money skills that you want them to learn.

Author: Dominique Brown

Dominique Brown is a husband, father, financial planner, author of the book "How to Fix your Credit," author of www.yourfinancessimplified.com, owner of S&D Capital Holdings and a landlord. Mr. Brown's advice can be found on the Huffington Post, Business Insider, Yahoo, Madame Noir, HR Block and Ebony Magazine. He holds a bachelor's degree from George Mason University in IT Security. He wanted to be a computer scientist at one point in his life. However, when his mother faced financial disaster after a divorce he switched his focus to financial planning to ensure that his family will have financial independence and generational wealth. His hobbies include posting too much on Facebook, daily pictures with his daughter on Instagram, creating hilarious recaps of trashy reality TV shows, playing too much and wearing suits.

You're right parents cannot directly contribute to the child's Roth IRA. There must be earned income to contribute to a ROTH. What can be done is the parents can gift the child 26k a year via split gifting. Gift the child the money and invest it on their behalf the boom your kid is set

I think you touch on two good points here–leading by example and teaching them for where they are. My daughter is 5 and she's now beginning to understand the concept of saving for later. The lessons that we teach her are reinforced because that's what we do. For instance, we're planning on going to Disney World again next year and we've started talking about saving for it. It's an easy and effective way to introduce the concept to her while practicing what we preach.

As parents, we have to take the lead on teaching our kids these skills.

My favorite part…"making saving mandatory without explaining why is unlikely to teach kids the fundamental money lessons that they need to learn." Ongoing, age appropriate conversations about money are so very important. If money is a taboo topic and restrictions are forced with no explanations, true learning will not take place. David Owen in his book "The Bank of Dad" points out that most kids would rather get $5 that they can use than $50 that is whisked away into a bank account to be used when they are going to college.

Getting kids actively involved in saving and spending teaches them so much more.

It is never too early to teach kids how to save money. Piggy banks are great as both teaching tools and fun toys. Nowadays they come in all sizes and shapes. Its a way of attracting the kids to save money..